No More Secrets: States Introduce Legislation to Preclude Confidentiality Provisions in Settlement Agreements Involving Harassment Allegations

Monday, February 12, 2018

Allegations of sexual misconduct against celebrities and high-profile individuals continue to occupy the national spotlight. State legislators around the country have started to propose new laws which ban confidentiality and nondisclosure provisions in settlement agreements that resolve disputes arising from sexual harassment allegations. As we wrote about in an early blog post, critics of confidentiality provisions claim these clauses enable victimizers to conceal and continue long-running patterns of sexual misconduct, and prevent discussion of the accusations among the victims and co-workers.

We have summarized the proposed legislation here:

California

SB 820 prohibits settlement agreements that prevent the disclosure of factual information related to an underlying lawsuit where the claimant alleges sexual assault, workplace sexual harassment or discrimination based on sex, or a failure to prevent workplace sexual harassment or discrimination based on sex. The law prohibits confidentiality provisions in other contexts as well, such as claims of sexual harassment or gender discrimination in the context of service or professional relationships (such as relationships with physicians, therapists, teachers, and attorneys). The bill would expand existing law, which prohibits confidentiality provisions in agreements resolving claims where the underlying factual allegations involve an act that could be prosecuted as a felony sexual offense, childhood sexual abuse, exploitation of a minor, or sexual abuse of an elder. The pending law would however, permit a confidentiality provision if the claimant requests its inclusion. Also, the law would allow a provision in an agreement that precludes the disclosure of the amount paid in settlement of a claim.

The statute would make void as against public policy any such confidentiality provision that is entered into on or after January 1, 2019, so the law, if passed, would not affect settlement agreements entered into during 2018.

New York

In New York, proposed Senate Bill 6972 would make unlawful and prohibit any court from accepting “any settlement, including any confidentiality agreement or provision that provides for the non-disclosure or confidentiality of the acts constituting the sexual harassment and the admitted perpetrator thereof.” This bill also adopts the definition of “sexual harassment” into state law. Although the NYS Division of Human Rights uses a definition administratively, there is currently no statutory definition of sexual harassment. That leaves litigants subject to varying interpretations by judges, who may improperly dismiss sexual harassment cases at the outset.

Furthermore, if an individual or company paid any money in connection with a settlement agreement to resolve a matter involving sexual harassment allegations, this bill would deem the allegations admitted by the settling party. Finally, this bill would also prohibit mandatory arbitration of sexual harassment complaints.

If this bill passes in 2018, it is scheduled to become effective on January 1, 2019.

New Jersey

Proposed Senate Bill S 3581 in New Jersey would prohibit jury waivers, arbitration clauses and nondisclosure provisions related to claims under the New Jersey Law Against Discrimination (NJLAD), N.J.S.A. § 10:5-1, et seq.

The proposed law would make “any employment contract or agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment” unenforceable and against public policy. This bill, unlike other state legislation, would prohibit the use of confidentiality provisions relating to any discrimination and retaliation claims, not just harassment claims.

If passed, this law would prevent an employer from enforcing any confidentiality or nondisclosure provisions in settlement agreements resolving claims under the NJLAD, whether as part of a litigation or pre-suit negotiation.

This bill would become effective immediately after passage by the state legislature.

Pennsylvania

Proposed SB 999 in Pennsylvania would ban agreements that prohibit public disclosure of names of people accused of sexual harassment; suppress information that could be relevant to a sexual harassment investigation; or impair the ability of a victim to report a sexual harassment claim. The bill would, however, grant a shield of confidentiality to victims making allegations of abuse, giving victims similar rights to those of juveniles in a child welfare case, who are permitted to bring cases through use of their initials or other identifiers.

Additionally, for agreements that contain such a confidentiality or nondisclosure provision and were entered into prior to the effective date of this bill, this bill would make such agreement voidable if the signatory was (i) under duress; (ii) incompetent or impaired; or (iii) a minor at the time of executing the agreement.

Based on the proposed bill, it is unclear when this law would go into effect if it passes.

Washington

Senate Bill 5996 would prohibit an employer from requiring an employee to sign, as a condition of employment, a nondisclosure agreement that prevents disclosure of sexual harassment or sexual assault occurring in the workplace. However, unlike other bills, an amended version of this bill expressly holds that this law “does not prohibit a settlement agreement between an employee or former employee alleging sexual harassment and an employer from containing confidentiality provisions.” Therefore, while this proposed bill would prevent confidentiality provisions in employment agreements, it permits these provisions in settlement agreements.

If passed, it is unclear when this bill would go into effect.

Takeaways

Nationally, there is a growing public desire for greater regulation and resources to tackle harassment in the workplace. The viral #metoo movement continues to dominate the news, with new accusations coming out on a weekly basis. As we previously wrote about here, the new tax law passed in December 2017 includes a provision which disallows the tax deduction of any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is conditioned upon the execution of a nondisclosure agreement. It is likely that the above states, and likely some others, will pass some form of legislation to preclude the use of confidentiality provisions in settlement agreements involving sexual harassment allegations.

It remains to be seen if these laws may have unintended consequences, such as dis-incentivizing employers to settle sexual harassment cases if they have no prospect of keeping the allegations against them and their employees confidential. Another possible outcome is diminishing the amount employers are willing to pay for a settlement that does not include confidentiality. The new laws may also lead to another unintended outcome, that is, a public airing not only of the allegations against the harasser, but potentially, a public attack on the veracity of the accuser or other undesirable facts or circumstances about the accuser.

Kate S. Gold is a partner in the firm's Labor & Employment and Commercial Litigation Practice Groups. For more than 20 years, Kate has defended clients in the entertainment, retail and other prominent Southern California industries in employment and business disputes in state and federal courts, arbitrations, and before agencies.

Vik Jaitly is an associate in the firm's Commercial Litigation Practice Group.

Vik currently works with the firm’s Construction and Environmental and Energy Practice Group assisting with prosecuting and defending cost recovery claims, construction defect claims, environmental insurance coverage claims, as well as contribution and indemnification under Superfund and related federal and state statutes. Vik also assists the firm’s Construction Group clients with drafting and negotiating construction contracts. In addition, he handles commercial and residential foreclosure actions.

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